Many traditional UK lenders have become increasingly risk-averse in recent years. The financial crash in 2008 and uncertainty surrounding Brexit has made mortgage providers more reluctant to approve loans for property investment. However, one type of finance has been steadily growing in popularity.
Bridging loans offer a short-term borrowing option for property investors seeking to purchase or renovate a building. But what exactly are “unregulated” bridging loans and how can they benefit you as a property investor?
Regulated vs. Unregulated Bridging Loans
There are two categories of bridging loans; regulated and unregulated. Each fulfils a different purpose and have their own set of eligibility criteria.
The Financial Conduct Authority (FCA) oversees regulated loans. Borrowers can take out a first charge loan if they have a mortgage-free property to use as security or a second charge loan if there is an outstanding mortgage balance. A regulated loan will only be approved if the borrower or their family occupies (or plans to occupy) at least 40% of the property. The regulations set by the FCA binds the lender.
Unregulated bridging loans are available as a first charge loan on a commercial property or a building purchased for investment purposes. An unregulated second charge loan may be an option if the borrower owns a property worth more than £25,000. Any loan taken out where the borrower or their family does not live in the property will be unregulated. Lenders of unregulated loans are not bound by the FCA’s regulations. This type of loan is popular with property investors seeking short-term financing to purchase or renovate a commercial property.
Benefits of Unregulated Bridging Loans for Investors
Raise capital fast. Applying for an unregulated loan is quick and easy. The FCA does not oversee the lender, so there is far less red tape to wade through. Decisions are made in hours and funds released in days. Apex Bridging releases funds within seven days of loan approval. For many property deals, the ability to act quickly can make all the difference.
No monthly repayments. Most bridging loan providers will “roll-up” the interest on the loan, meaning there are no monthly payments to make. The final amount owed is paid in one lump sum at the end of the loan term, which is typically between four and 12 months. These terms can be advantageous for property investors who have their money tied up in a current project and will not receive any income until the property sells.
Flexibility. Many traditional lenders cannot approve loans for “high risk” property projects. Bridging loans can be used for a wide range of purposes including renovations, construction projects and the purchase of land. Many investors turn to this type of finance if a standard loan is not available for the project they wish to pursue. Furthermore, because bridging loans are available as a second charge — unlike traditional mortgage providers — the lender will still approve the loan if a property already has financing on it.
Buy at property auctions. Investors often scour property auctions for potential opportunities. If they wish to purchase a property, the exchange takes place at the auction and completion must occur within 28 days. An unregulated bridging loan can give an investor access to capital fast, allowing them to seize opportunities as they arise.
No credit checks. A traditional mortgage lender will run through credit checks on all loan applicants. They have strict criteria a borrower must meet before a loan can be approved. Providers of unregulated bridging loans focus on the potential profit of any investment made, rather than the financial history or status of the borrower. This allows an investor with a credit rating that would preclude him or her from accessing standard finance to secure a loan. At Apex Bridging, we consider all applications on a case-by-case basis and never require a credit check.
How to Get Started with Unregulated Bridging Loans
Apex Bridging is the lender of choice for hundreds of brokers across the UK. We have helped countless property investors to raise the funds they need for the timely and successful completion of their projects. Take a look at some of our recent case studies here.
Borrow between 100k and £2m on a short term basis (typically four-12 months). Our team of experts tailor finance solutions to meet the needs of each client and will never request a credit check. We lend at higher LTVs (Loan-to-Value) than many providers — up to 80%.